DOE Conditionally Approves Second Natural Gas Export License

Posted on May 30, 2013 by Deborah Jennings

On Friday, May 17, the Department of Energy (DOE) announced it had conditionally authorized Freeport LNG Expansion, L.P. and FLNG Liquefaction, LLC (collectively Freeport) to export domestically produced liquefied natural gas (LNG) to countries that do not have a Free Trade Agreement (FTA) with the United States from the Freeport LNG Terminal on Quintana Island, Texas.  This marks only the second time that the DOE has granted a natural gas export license to non-FTA countries, and only the first after DOE ceased action on all applications pending a study of the economic impacts of LNG exports.  The Freeport approval marks a noticeable, but likely incremental shift in US policy towards increased export of natural gas to non-FTA nations, opening up new markets for the boom in domestic natural gas production.

The DOE rejected opponents’ arguments that the project would be inconsistent with the public interest.  Among other reasons, the DOE found that the proposed exports are likely to yield net economic benefits to the US, would enhance energy security for the US and its allies, and were unlikely to affect adversely domestic gas availability, prices or volatility. Accordingly, DOE conditionally granted Freeport’s Application, subject to satisfactory completion of an environmental review pursuant to the National Environmental Policy Act (NEPA) by the Federal Energy Regulatory Commission (FERC) and DOE.  FERC will serve as the lead NEPA review agency. DOE will subsequently reconsider the conditional order in light of the NEPA analysis led by FERC and include the results in any final opinion and order.

Environmental issues will now take center stage as interested stakeholders seek to influence the government’s conclusions in the NEPA review.  In support of its application, Freeport extolled the following environmental benefits of the project:

•    Natural gas, the cleanest burning fossil fuel, would replace coal-fired power resulting in substantial reductions in greenhouse gas and traditional air pollutants. 
•    Compared to the average coal-fired plant, natural gas fired plants emit half as much carbon dioxide (CO2), less than a third of the nitrogen oxides, and one percent of the sulfur oxides. 
•    Natural gas, if used as a transportation fuel, also produces approximately 25 to 30 percent less CO2 than gasoline or diesel when used in vehicles, and is not a significant contributor to acid rain or smog formation.

Opponents of the project, however, are less convinced of its environmental benefits.  These include the Sierra Club, the Delaware Riverkeeper Network (consisting of 80 organizations), NRDC, among others.  Specifically, they assert that LNG exports will increase demand for natural gas, thereby increasing negative environmental and economic consequences associated with fracking, the process used for shale gas production.  They argue that the DOE’s two-part study of the economic impacts of LNG exports, upon which DOE relied in conditionally granting Freeport’s application, failed to consider the cost of the environmental externalities that would follow such exports, which include:

•    Environmental costs associated with producing more shale gas to support LNG exports;
•    Opportunity costs associated with the construction of natural gas production, transport, and export facilities, as opposed to investing in renewable or sustainable energy infrastructure;
•    Costs and implications associated with eminent domain necessary to build new pipelines to transport natural gas; and
•    Potential for switching from natural gas-fired electric generation to coal-fired generation, if higher domestic prices cause domestic electric generation to favor coal-fired generation at the margins.

Sierra Club and other organizations have previously challenged the adequacy of FERC’s and DOE’s NEPA determinations in other LNG export applications.  In the first LNG export license approval for Sabine Pass Liquefaction, LLC (DOE Docket. No. 10-111-LNG), Sierra Club, as an intervener in the FERC proceeding, challenged the adequacy of FERC’s NEPA compliance, and the lawfulness of the FERC’s determination to authorize the Project facilities. The FERC addressed these concerns and found that if a series of 55 enumerated conditions were met, the Project would not constitute a major Federal action significantly affecting the quality of the human environment. 

After FERC authorized the Liquefaction project, Sierra Club filed a motion to intervene out of time before DOE , again challenging FERC’s NEPA determinations.  DOE rejected Sierra Club’s motion, and granted the final order approving the LNG export on August 7, 2012.  Sierra Club subsequently sought a rehearing on the final order which was also rejected by the DOE in a January 25, 2013 order

Similarly, earlier this month, Sierra Club and other environmental organizations objected to the proposed Dominion Cove Point LNG export terminal in Maryland, arguing the project would harm the Chesapeake Bay’s economy and ecology, increase air pollution, and hasten fracking and drilling in neighboring states.  On May 3, 2013, the coalition filed public comments and a timely motion to intervene in the proceedings calling on FERC to conduct a thorough environmental review, or prepare an EIS, of the project.  The proposed terminal will be the only LNG export facility in the east coast, providing foreign markets with access to natural gas from the Marcellus Shale.

Energy Resources Exports: Good for America? Good for the Environment?

Posted on May 10, 2013 by Sheila Slocum Hollis

Proposals to export liquefied natural gas (“LNG”) produced in large part from shale gas recovered by hydraulic fracturing techniques or “fracing” continue the public debate about the desirability of exports of other energy resources.  This political, regulatory, environmental and trade debate engages powerful politicians, lobbyists, environmental groups, trade associations, developers, producers, state regulatory authorities, consultants, academics, and landowners, and a broad spectrum of the press and public. 

On its face, the notion of substantial exports of LNG to both countries with which the U.S. has free trade agreements (FTA) in place and those it does not, seems highly attractive.  Such exports would improve the balance of trade deficits, create new jobs associated with the production; and produce tax revenue.  And, from the broad environmental perspective, LNG exports would lower greenhouse gas emissions (GHG) in countries with heavy reliance now and in the future on coal or oil for electric generation, or in countries with need for replacement of nuclear facilities.

Query then, what are the factors that engender the impassioned debate on energy resource export policy?  Key are:  (1) fears of massive development of “frac” gas, freighted with concern over impacts on water, air, and use.  Analogous to the Keystone XL battle, another concern is development of the unconventional gas for the benefit of foreign interests, particularly those without an FTA in place with the U.S. (export to those countries with FTA agreements with the U.S. is deemed by law to be in the public interest).  (2) A second issue in contention on LNG is the impact on domestic energy prices if significant LNG exports limit availability of natural gas for domestic industrial and other uses.  (This issue harkens back to the energy crises of the 1970s when natural gas availability was tight and energy prices sky high.) 

So, although not explicitly an environmental-based objection, such opponents of LNG exports  find friendly bedfellows with the environmental objectors and the commercial interests concerned about their ability to rely upon and benefit from increased gas supply.  Industrial interests argue that stopping exports to non-FTA countries, particularly the insatiable Asian markets, will result in an industrial renaissance with jobs and development growing significantly.  And, some opponents of LNG exports to non-FTA countries ironically, (to this blogger at least) express little regard for overall environmental benefit to potential importing countries and thus the globe.  Rather, the impact on the United States from development of unconventionally sourced gas supply has been their focus point.  Yet, LNG is only part of the energy export debate.

Further complicating this analysis is the parallel potential increase in the export of U.S. coal to energy hungry nations, particularly in Asia.  As noted above, there is a broader questioning on the entire topic of U.S. energy resources exports: LNG, oil or refined products and coal.  In addition to the Keystone XL pipeline standoff, many environmentally oriented players (e.g., the Sierra Club) and political leaders have expressed reservations about the export of U.S. coal for two primary reasons – the impact on the U.S. of new infrastructure for storage, transportation and increased mining activities, and the increase in GHG emissions worldwide as a result of heavier coal-fired electric generation.  And in the past months, several proposed coal export projects have been scrapped. This energy export issue makes for a complicated stew of federal, local and regional politics.  What makes the entire public war of words (and the behind the scenes maneuvering) so fascinating is the question of who or what decides where and with what restrictions U.S. energy resources are to be marketed to the world – the federal agencies, the state and local governmental entities, or the market?  The next few months may provide guidance on LNG and perhaps the Keystone XL pipeline, however, the national and international implications of these decisions are so important that it is unlikely that peace will settle on these matters for decades.

LNG Import or Export—Should the Public Care Which?

Posted on February 6, 2012 by Richard Glick

Just a few years ago, the price of natural gas was high enough to encourage development of liquefied natural gas (LNG) import terminals to receive LNG from foreign gas producers and then “re-gassify” such gas before sending it to existing interstate pipelines.  Three such facilities were proposed in Oregon, after a failed attempt to site an LNG terminal in California.  The presumption had been that due to the high capital cost of the terminal and related pipeline, and because of market constraints, there would be but one terminal on the West Coast. 

That dynamic has shifted with discovery of abundant domestic shale gas deposits and attendant lowering of gas prices, and LNG terminal developers are thinking “export,” instead of import.  Should this change in the LNG business model matter to anyone?

Of the proposed Oregon projects, two remain: at the Port of Coos Bay and on the Skipanon Peninsula in Youngs Bay, at the mouth of the Columbia.  The projects have generated controversy, with opponents asserting public safety concerns (i.e. uncontrolled “blast zones”), harm to aquatic habitat, creation of a terrorist target, usurpation of land owner rights along the pipeline route, and all apparently with no benefit to Oregon because the gas may only be shipped to our evil sister to the south, California.  Of course, these are all issues that the FERC and state permitting reviews are designed to uncover, assess and prescribe mitigation for and those processes are incomplete.
Natural gas prices have come down to the point that an LNG import facility may no longer make sense.  On the other hand, demand for natural gas in Asia is high, particularly in Japan following the Fukushima nuclear disaster, which in turn raises prices.  Thus, the two remaining Oregon LNG projects are actively considering conversion to export facilities, and there is enough global demand—and plenty of surplus Canadian and U.S. natural gas—that more than one would be needed to make much of a dent in that surplus.  This result has enraged environmental activists, as though it is somehow unfair to change the economic model on which a proposed project is based.

There is nothing about a LNG export facility that is so different—either in form or impact on land or resources—such that it should affect how the public views LNG.  The two concepts have approximately the same footprints, and to the untrained observer, would look the same.  In the case of the Skipanon Peninsula project, tanks are the most prominent structures; import and export tanks are identical, except that an export facility would require only two, whereas an import terminal requires three.  The dock/pier arrangements for import or export facilities are identical.  The two concepts have very similar (and very limited) environmental impacts, all of which will be reviewed in detail in the various state and FERC regulatory processes.  In addition, an LNG export facility would provide four times as many construction jobs (about 10,000 man-years) and almost twice the amount of long-term employment originally anticipated from the project.  The project represents a $5 billion investment in a region with no apparent industrial development alternatives on the horizon, and with property tax rates right around 1%, such a project would infuse approximately $50 million in local annual tax assessments.

There are some who suggest allowing exports of LNG would raise domestic natural gas prices and thereby place the U.S. economy at a disadvantage.  But of course the U. S. participates in a global economy and gas prices are driven by global market conditions.  A commodity will find a market, seeking the highest prices available, wherever it originates.  The U. S. exports approximately 50 million metric tons of grain every year and that probably raises U.S. domestic food prices a little, but would anybody seriously argue that we should stop grain exports?

Markets will determine whether a shift to exporting LNG makes economic sense.  Environmental effects and other public interest issues related to an LNG export terminal and related pipeline projects should be judged on their merits by the federal and state agencies charged to do so.